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Retail under pressure as consumers make spending cuts

By Juliet Helmke
13 June 2024 | 12 minute read
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Still strained from COVID-19 losses, Australia’s retail sector is facing a hurdle in its continued recovery as economic factors force consumers to pull back.

Deloitte reported that retail spending contracted 0.4 per cent over the March quarter of 2024, with Deloitte economist and the report’s author, David Rumbens, declaring that frugality has come “back in vogue”.

“The year has really begun with a fizzle rather than a bang for most retailers,” he said, noting that high residential rents, alongside rising insurance and utility costs, have seen many Australians devote a larger proportion of their budgets to essential spending – slashing what they have left for discretionary purchases.

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With April recording the very marginal lift of retail turnover of 0.1 per cent, Rumbens noted that the immediate road ahead is “looking rocky, particularly as unemployment rises further”.

While many are counting on real growth, the stage three tax cuts and eventual interest rate reductions to bring some relief to the sector, Deloitte reported that other factors, such as the slowdown in population growth, will throw a spanner in the works.

“With per capita spending stagnating or contracting for the last seven consecutive quarters, more moderate population growth risks dampening the retail recovery,” Rumbens commented.

Additionally, the 3.75 per cent increase in minimum award wages will be something of a “double-edged sword” for the sector, according to the economist, who said that businesses would benefit from more money in consumers’ pockets while also taking a bottom-line hit in having to increase business wages.

“On the one hand this will provide a modest further boost to real wage growth for consumers, supporting the economy’s capacity to spend. On the other hand, the increase is higher than the retail sector wanted, and will place some businesses under further financial pressure, at a time when retail and hospitality insolvencies are already rising,” he noted.

Deloitte projects that retail turnover will end the 2024 calendar year at 0 per cent growth, moving up to 2.3 per cent in 2025.

Overall, retail spending is expected to trend upwards at some point in the year, even if the start of that increase, as well as its extent, are still up for debate.

“Household goods turnover should pick up more with better economic conditions and with an uplift in national building activity, supported by the government’s ambitious housing targets,” Rumbens said of the tailwinds ahead. Meanwhile, the impact of the tax cuts are expected to be felt most in the hospitality sector.

ABOUT THE AUTHOR


Juliet Helmke

Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.

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